Does Obama plan target special needs trusts?
October 25th, 2008From the Wall Street Journal:
In her speech yesterday, Sarah Palin said Barack Obama’s tax plan would raise taxes on special needs trusts. These trusts are legal arrangements which allow parents to put aside assets for their adult disabled children without jeopardizing their children’s eligibility for government benefits.
Andy Imparato, president of the American Association of People with Disabilities, a nonpartisan nonprofit, says he has not heard any complaints from constituents about how the Obama tax plan would affect them.
“It’s my understanding that he’d raise taxes on anyone making more than $250,000. That doesn’t seem to single out parents of disabled children,” he says.
See also: Six things to know about a special needs trust — AP/Forbes
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October 25th, 2008 at 9:50 am
So, Andy got this almost right. Many families making $250,000 or more would see no change, so that’s important — not everyone would see an increase. Even more important, an expert analysis [see editor's note below] posted with this WSJ article says that people who use a special needs trust would actually be better off under Obama:
“Senator McCain’s campaign’s claim that Senator Obama’s plan will raise taxes on special needs trusts is misleading. I am an estate planning/elder law attorney in Ohio who is very familiar with the taxation of special needs trusts. There are two types of these trusts. The first is a trust which is created with the disabled individual’s assets, e.g. an inheritance or a personal injury settlement. If properly drafted, the trust is exempt from Medicaid and Supplemental Social Security Income (SSI). The income and assets can be used for the disabled person’s needs which are not covered by those governmental programs. This trust is typically a “grantor” trust, meaning that the income is taxed to the disabled individual, and not the trust. I would venture to say that there are very few disabled individuals with income in excess of $250,000. The typical disabled individual would actually benefit from Senator Obama’s tax plan.
“The second type of “special needs trust” is a trust created by a third party, such as the disabled person’s parents. That type of trust could conceivably pay more taxes under the Obama plan since the trust is taxed on income retained in trust. However, any distributions from the trust to or for the benefit of the disabled individual would carry out income to that individual and be taxed at his or her rates. Once again, through proper tax planning, the overall result to the family would be better under the Obama plan. — Douglas M. Toot, OH”
[Editor's note: The quotes above attributed to Douglas M. Toot are included in a comment on the Wall Street Journal article. That comment is posted here.